Cal-Peculiarities: How California Employment Law is Different 2022 Edition

248 | 2022 Cal-Peculiarities ©2022 Seyfarth Shaw LLP  www.seyfarth.com discretion to manage the time needed to do their work. Likewise, while exempt employees get paid the same regardless of how many hours they work, nonexempt employees generally get paid for all time worked, which employers must record; that arrangement would be at odds with an unlimited time-off policy. So how does an “unlimited PTO” policy fare when legally challenged? Early results were not promising. In a 2020 case, the Court of Appeal ruled in favor of exempt employees seeking pay for vacation time that they argued they accrued despite their employer’s unlimited, no-accrual vacation policy. The employer thought it had an “unlimited PTO” policy because the employer did not promise specific amounts of paid vacation and did not cap how much vacation employees could take. But the employer had no written statement that PTO was unlimited, and the employer in practice expected employees to take just two to four vacation weeks per year. The Court of Appeal, while disclaiming any holding that all nonspecific PTO policies would require payment of “unused” vacation upon termination of employment, upheld a trial court finding of an implied cap: “an employer cannot avoid Section 227.3 by leaving the amount of vacation time undefined in its policy while impliedly limiting the time actually available for approval. ” 427 The Court of Appeal said that an unlimited PTO plan might avoid final-pay obligations if it was in writing and (1) did not provide for additional wages but rather for a flexible work schedule, (2) specified employee and employer obligations and the consequences for failing to schedule time off, (3) allowed employees to take time off or to work fewer hours instead of taking time off, and (4) was “administered fairly” so it was not a de facto “use it or lose it” policy and so that it did not result in “inequities,” such as where some employees work long hours with minimal time off while others work fewer hours with more time off . 428 7.20 Personal Liability for Wage and Hour Violations Unpaid wages. Some employees seeking unpaid wages have sued corporate officials personally. In 2005, the California Supreme Court limited this practice by holding, in Reynolds v. Bement , that corporate officers, directors, and shareholders cannot be personally liable for unpaid overtime wages as an “employer,” even if they exercised control over the payment of wages . 429 R eynolds also rejected a theory that the individual defendants were jointly liable for directing or participating in tortious conduct. Reynolds explained: a “simple failure to comply with statutory overtime requirements” does not qualify as tortious. Finally, Reynolds held that the individual defendants could not be liable for “conspiring” with their corporate employer to withhold wages, because corporate agents acting on the corporation’s behalf are not considered to be co-conspirator s. 430 At the same time, however, Reynolds encouraged plaintiffs not to despair, by speculating as to circumstances where personal liability for unpaid wages could still be possible. First , the Labor Commissioner can continue to use the broad definition of “employer” found in the wage orders to seek financial recovery from individuals in administrative hearings . 431 S econd , in cases of thinly capitalized corporations that have played fast and loose with the corporate form, the “alter ego” doctrine can make controlling individuals liable for unpaid wages. Third , huge civil penalties ($100 per underpaid employee per pay period) could be sought by aggrieved employees under PAGA, against “any person acting on behalf of an employer who violates, or causes to be violated,” a statute or wage order regarding wages . 432 The Court of Appeal has held that a company’s president, sole shareholder, and director could be individually liable, both as a joint employer and as an alter ego. At issue was a suit by restaurant employees against their former employer, Koji’s, for unpaid wages, inadequate wage statements, and failure to provide meal and rest breaks. Koji’s went out of business, but the employees also sued Arthur Parent, Koji’s president, sole shareholder, and director. The trial court, after a bench trial, rejected the plaintiffs’ contention that Parent was a